The US stock market faced a challenging week, ending on a sharply negative note as major indexes slid into the red. Investors were shaken by a combination of a weaker-than-expected jobs report and growing concerns about the Federal Reserve’s next move regarding interest rates. The result was a broad-based sell-off, with technology stocks bearing the brunt of the damage.

Market Recap: Major Indexes Suffer Heavy Losses

Friday’s trading session saw the Nasdaq Composite (^IXIC) plunge by more than 2.5%, making it the worst performer among the major indexes. The S&P 500 (^GSPC) also suffered a steep drop, losing 1.7%, while the Dow Jones Industrial Average (^DJI) declined by 1%. For the Nasdaq, it was the worst week since June 2022, and for the S&P 500, the worst since March 2023.

The week’s downturn highlights the fragility of the stock market as it struggles to navigate a complex macroeconomic environment. Investors are growing increasingly cautious as they anticipate potential policy shifts from the Federal Reserve in light of softer labor market data and mixed corporate earnings reports.

Weak Jobs Data Raises Concerns

The catalyst for the week’s sell-off came from the August jobs report, which showed that the US economy added 142,000 jobs during the month, falling short of expectations for 165,000. This marks a continued cooling of the labor market, with the previous month's job growth also revised downward. The unemployment rate, however, ticked down to 4.2% from 4.3%, offering a glimmer of hope that the labor market may still hold some resilience.

The softer jobs data reignited debates over the Federal Reserve's upcoming interest rate decision. With signs of economic slowing, the probability of a more aggressive rate cut has increased. According to the CME FedWatch Tool, traders now see a 50-50 chance of a 50 basis point rate cut at the Fed’s meeting later this month, a significant shift from earlier in the week when expectations were for a 25 basis point cut.

Fed Governor Chris Waller echoed recent sentiments from Fed Chair Jerome Powell, stating, "The time has come" to lower interest rates. Waller added that if data supports further cuts, the Fed would be open to lowering rates at consecutive meetings.

Technology Stocks Take a Beating

The tech sector was the hardest hit during the week’s market turmoil. Broadcom (AVGO), one of the week’s biggest losers, saw its stock plunge more than 10% following a lackluster sales forecast. Although Broadcom has been benefiting from increased AI spending, its other business divisions have underperformed, leading to a wave of pessimism across the chipmaking sector.

This sell-off extended to other semiconductor giants. Nvidia (NVDA), an AI chip leader, saw its stock tumble by about 4% on Friday alone, capping off a difficult week where the stock fell roughly 14%. Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing Company (TSMC) also posted significant losses, dragging down the broader technology sector. The tech-heavy Nasdaq was hit particularly hard as concerns about capital expenditures for tech infrastructure and the potential peaking of the AI boom weighed on investors' minds.

The broader S&P 500 technology sector also fell 2.6% on Friday, contributing to the overall decline in the index. Concerns about whether the Federal Reserve will provide enough support through rate cuts and skepticism over continued tech spending are dampening investor sentiment.

Corporate Earnings and Expectations

Corporate earnings have also played a significant role in shaping market sentiment. Analysts slashed their earnings expectations for the third quarter by 2.8%, according to data from Fitigroup. This marks a notable shift compared to the last quarter when analysts raised estimates during the first two months. Outside of a few high-performing companies—dubbed the "Magnificent 7"—earnings revisions for 2024 and 2025 have been underwhelming, adding to the cautious outlook for the market.

As the third quarter earnings season approaches, investors will be closely watching whether companies can exceed lowered expectations. A failure to do so could trigger further market corrections, particularly in sectors like technology, which have been at the forefront of the recent stock market rally.

Oil Prices Tumble as Demand Concerns Grow

In addition to stock market volatility, oil prices faced significant pressure this week. Crude oil prices dropped nearly 2% on Friday, with US crude trading below $68 per barrel and Brent crude hovering just above $71. The decline in oil prices followed the weak US jobs report, which fueled concerns over slowing demand.

The price drop occurred despite OPEC+ extending voluntary output cuts until December, a move designed to tighten supply. Analysts at Citigroup noted that while short-term price support may keep Brent crude in the $70 to $72 range, they expect prices to dip into the $60 range by 2025 as a surplus emerges in the oil market.

Fed’s Next Move: Inflation in Focus

Looking ahead, investors are keenly focused on next week’s inflation report, set for release on Wednesday. Economists expect headline inflation to come in at 2.6%, down from 2.9% in July. Core inflation, which excludes the more volatile categories of food and energy, is expected to remain steady at 3.2%.

The inflation data will play a critical role in shaping the Fed’s rate decision. If inflation shows signs of easing, it could reinforce the case for a sizable rate cut. However, any surprise upticks in inflation may temper expectations for aggressive monetary easing.

As market strategist Michael Darda noted, “Volatility is going to stay elevated.” The combination of a weakening labor market, uncertain earnings outlook, and inflation concerns could continue to weigh on stocks in the months ahead.

Conclusion: A Market at a Crossroads

The first week of September closed with major losses across US stock markets, driven by a mix of disappointing labor market data, earnings concerns, and fears about the Federal Reserve's next policy move. With tech stocks bearing the brunt of the sell-off, investors are now bracing for a period of elevated volatility as questions remain about the sustainability of recent market gains and the trajectory of the economy.

As Wall Street looks ahead to next week, all eyes will be on the latest inflation report and any signals from the Federal Reserve. For now, the market remains on shaky ground, with investors left wondering whether the Fed will provide enough support to sustain growth or if a deeper correction is on the horizon.